What is "Build For Rent"?
Updated: Sep 20, 2019
The current state of investment in residential housing, from both an individual and an institutional perspective, is in flux. More people than ever before are choosing to rent rather than purchase homes. Similarly, institutional investors are entering the market in a greater number, seeking to add SFR (Single Family Rentals) and B4R (Build for Rent) to the current lexicon of investment buzz words. While growth of the rental market as an investment option is real, there remains substantive work to really tackle this asset class in an effective and efficient manner.
There are over 135 million homes in the US, of which over 80 million are 1-4 housing units. It is estimated that about 21 million of these 1-4 unit homes are rentals. The vast majority of rental homes in the US are owned by individuals and small investors, with the average portfolio being 10-15 rentals. Institutional investors, or investors with more than 200 rental properties, account for about 400,000 rentals, or less than 1.5% of the rental market.
Rental housing units may account for over one quarter of 1-4 unit homes, but most economists estimate this is still significantly less than needed to meet current (and future) demand. Leading this demand are millennials (where a large percent either don’t want or are not able to buy a home) and baby boomers (empty-nesters selling their high end home and downsizing or relocating without the need or the desire to take out a new mortgage). Current forecasts have a shortfall of one million rental homes compared to need. Indeed this number may be conservative as not only is demand increasing among the two largest demographics (millennials and boomers) but current supply is constantly reducing due to combination of tear downs of old product and conversion of existing rentals back into owner occupied product.
With demand growing from both potential renters and potential investors, the concept of "Build for Rent" has taken off in recent years. Build for rent does exactly what it suggests, build homes for the rental market. The advantages of building rental homes instead of sporadic acquisitions are many. For the tenant, they have a flexible, affordable housing option, in a community with other renters. For the investor, there are lower running costs and maintenance, more efficient management, as well as the ability to grow a portfolio with some certainty. And for the developers and the home builders, there is the double benefit of consistency and certainty - with each lot and home presold before work begins, while development time is reduced and margins maintained.
Spire Residential believes in the benefits of Build for Rent, and has made key partnerships with builders and institutional investors in this space to help deliver the promised potential. As a company with large exposure and experience in the residential space, Spire Residential has a vested interest in helping the Build for Rent sector grow in ways that benefit our developer borrowers, our home building partners, our investor colleagues, and our valued communities.
Spire Residential LLC is a real estate investment company headquartered in Charlotte, North Carolina and focusing on investment opportunities throughout the United States. The principals at Spire have over 75 years combined of real estate investment and management experience. Together, they have assembled a team to originate residential development deals, both for sale and for rent.
The Spire team has worked with all the top public home builders, and most of the largest private companies. They have managed developments in over 20 states, and deployed over $1.4bn of debt and equity in the development space in the past 5 years.